Triplex Meets 1% Rule - Can't Make it Cash Flow

[Elena S.]

Hello everyone,

I am a new investor in California and I am looking to acquire rental properties for cash flow. My Realtor sent me this deal, which in theory should cash flow because it meets the 1% rule. It's a triplex in a C-class neighborhood, built in 1957. Asking price: $245,000. Total monthly rent: $2,523. Needs only cosmetic updates, fully rented. I plan to put 20% down, 4.5% interest rate. My goal is to cash flow $500 per month on this property to make it worth investing in. Am I being way too conservative with my calculations or is this simply not a good deal? I am including LLC cost because I will not do real estate deals in my personal name. Here are my calculations:

Category	Monthly	Yearly
Total Rent	$2,523	$30,276
Mortgage	$993.10	$11,917.20
Property Taxes	$612.50	$7,350
Property Insurance	$115	$1,380.00
Liability Insurance	$83	$1,000
LLC	$67	$800
Utilities	$300	$3,600
Property Management 10% of rent	$252	$3,024
Repairs 10% of rent	$252	$3,024
Cap Ex 10% of rent	$252	$3,024
Vacancies 10% of rent	$252	$3,024
Total Expenses	$3,178.60	$38,143.20
Cash Flow	-$655.60	-$7,867.20

[Ali Boone]

This is why the 1%, 2% and 50% rules need to be thrown out the window. At most, they can be used for quick analysis when shopping for properties, but at no point have any of them ever been a guarantee of cash flow (or a good deal). I'd say throw the "rule" out the window and go with the actual numbers. There's a GROSS misunderstanding on most people's parts about those rules.